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What You Should Know about Buying and Keeping a Home

To address Ohio's considerable foreclosure problem, many organizations, both governmental and private, have been formed. It is critical for consumers to become informed about how mortgages work.

Q: What is an adjustable rate mortgage?
A:
 This is a mortgage that starts with a low or “teaser” rate that can increase over the life of the loan, often as much as five percent.  Most of the rate increases kick in within the first three to five years of the mortgage.

Q: What is an interest-only mortgage?
A: 
An interest-only mortgage calls for interest-only payments for three to five years. Then, principal payments are added. If these payments are not made, the entire balance “balloons,” or is due to be paid in full.

Q: What potential problems should I be aware of if I’m thinking about getting an adjustable rate or interest-only mortgage?
A: 
These types of mortgages often lead to the purchase of more house than you can afford. The initial payment fits within your budget, and you ignore the fact that your income may not increase enough in three to five years to offset the higher payment, which may lead to a foreclosure.

Q: How can I avoid these problems?
A: 
Decide for yourself how much you can afford to spend on a house today, and how much you  are likely to be able to afford over the next five years. Do not let a banker or mortgage broker talk you into more than you can afford. Apply the traditional rule that a mortgage payment should not be more than 25 percent of your take-home pay. Also, make a down payment so you will have some equity in the house.

Q: What should I do if I have trouble making my payments?
A: 
Contact the lender immediately to discuss your economic situation and when you think it is likely to improve. Discuss revising the mortgage and what steps you can take to avoid foreclosure. Do not wait until you are in default and the foreclosure process has begun. This adds costs, and  makes resolution of the problem more difficult.

1/3/2014

Law You Can Use is a weekly consumer legal information column provided by the Ohio State Bar Association. This article was prepared by attorney Terry D. Zimmerman, a partner in the Akron firm of Kaffen & Zimmerman.​​​

Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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